Today's guest post is by Jim Sargent, of Lamb McErlane, who was one of the winning attorneys in the Basile v. H&R Block decision his post discusses. Way to go Jim (and everybody else on the team)! Bexis and Jim go back a ways, since Bexis wrote PLAC amicus briefs in the Samuel-Bassett case that Jim mentions in this post. As always, the guest blogger gets all the credit/shoulders all the blame for his post (unless the links don't work - that would be Bexis' fault).
Basile, although not a drug/device opinion, is an important class certification decision in Pennsylvania.
*******************
The Pennsylvania Supreme Court’s most recent decision on class actions is in Basile v. H&R Block, Inc., ___ A.3d ___, 2012 WL 3871504 (Pa. Sept. 7, 2012) ("Basile III"). Basile was a putative class action commenced way back in 1993, claiming that the defendant breached a fiduciary duty to its customers by not sufficiently disclosing that its “rapid refunds” of federal taxes actually were high interest consumer loans. Plaintiffs claimed that the defendant was a "fiduciary" as a way of avoiding reliance and individualized issues that prevent certification of this sort of claim.
The class was certified in 1997 by the late Judge Bernard Avellino, based on a “presumption” that an agency relationship existed between the defendant and some 600,000 customers. Over the next 15 years there then ensued 9 separate appeals – the case was before the Superior Court 5 (twice before the court en banc) times and the Supreme Court 4 times – which well may make it the longest appellate record in Pennsylvania history.
On the first appeal, the Supreme Court rejected the notion that any agency relationship supported Plaintiffs’ claim that a fiduciary duty existed between the defendant and the class. Basile v. H & R Block, Inc., 761 A. 2d 1115 (Pa. 2000) ("Basile I"). In its September 7, 2012 opinion the Court reiterated that it meant what it said the first time, rejecting the contention that a “confidential relationship” (the “fiduciary” claim under another name) existed, thus knocking out the remaining foundation for Plaintiffs’ claim.
In the course of the 19 year history in Basile, the Supreme Court clarified the law of agency, Basile I, supra, 761 A. 2d 1115, the aggrieved party doctrine (after some Superior Court funny business with appellate issues), Basile v. H & R Block, Inc., 973 A. 2d 417 (Pa. 2009) ("Basile II"), and now, in this latest opinion, the “confidential relationship” doctrine.
Probably most important in the long term, though, is what the Court had to say about the principles governing class certification. .
Its September 7 Basile III opinion reversed the Superior Court and affirmed the trial court decertification order. Think about what the Superior Court had done. It had held that that this class had to be certified; that decertification was an abuse of discretion. Writing in a 6-0 decision (Justice Orie-Melvin attended argument but is now suspended from the Court), Justice Saylor disposed of some eighty-year-old dictum, and held that a “confidential relationship” sufficient to give rise to a fiduciary duty is “‘intensely fact-specific,’” 2012 WL 3871504, at *7-8, and not suited to class-certification. The Court therefore held that the class was properly decertified.
Justice Saylor’s rulings on class action procedure and his reflections generally on the class action mechanism bear taking specific note. Speaking for a unanimous court, he rejected the Superior Court’s attempt to flip the burden of proof on class certification. Evidence sufficient to defeat summary judgment (where all inferences benefit the plaintiff), does not create grounds for certification of a class (where the plaintiff bears the burden). To support class certification facts must be “properly determined . . . not assumed.” 2012 WL 3871504, at *6. “[D]eferring close consideration of class certification to the time when facts are determined by a jury at trial (namely, in connection with the verdict) is incompatible with the governing procedural rules.” Id.
Towards the end − after once describing class actions as “collectivized treatment,” id. at *6 − the opinion returns to this theme, stating: “We are cognizant of the tendency toward sanctioning the use of class actions as a convenience to address colorably meritorious claims in an aggregate fashion, where these might not otherwise be capable of being redressed practically on an individual basis.” Id. at *8. However, the Court rejected this temptation, holding that the approach to class treatment reflected in Pennsylvania’s class action rules “stems from limitations inherent in the judicial rulemaking process, the impact of collectivized treatment of individual claims on defendants’ substantive rights,” and “the limited policymaking role of the courts (as compared with the legislative branch) in terms of manipulating substantive law.” Id.
[Editor's note: On this blog, we refer to the "tendency" that Court rejected in Basile III "judicial triumphalism."]
The Court’s rejection of Plaintiffs’ invitation to fashion a judicial solution to a legislative problem should be applauded. In contrast, 9 months earlier in Samuel-Bassett v. Kia Motors America, Inc., 34 A.3d 1 (Pa. 2011), the same Court approved certification of a class of automobile owners on claims of out-of-pocket expense for brake repairs under an express warranty, where there was no proof that each class member had sustained any (let alone similar) repair expenses. The Court stated: “…a certification proceeding is a preliminary inquiry whose purpose is to establish who the parties to the class action are ‘and nothing more.’” 34 A.3d at 21-22 (quoting Pa. R.C.P. No. 1707 cmt). That plaintiff was not required to prove anything about the defendant’s liability at the certification stage and the trial court was prohibited from factoring the perceived adequacy of the “underlying merits of the class’s claims into the certification decision.” Id. at 22. The Court continued: “By the same token, pre-trial class certification proceedings do not require a mini-trial; the class is not obligated to establish liability during the class certification phase.” Id. (citations omitted). The Court then discounted the importance of individual proof of out-of-pocket costs for each class member: “As our previous analysis shows, [plaintiff] and the class adduced sufficient evidence during certification proceedings to show a common source of liability. Any question regarding individual expenditures resulting from varying attempts to repair the defect was not a ground to reject the commonality found on other issues, to defeat the predominance of common issues and, ultimately, to deny certification of the class at the preliminary stages of trial.” Id. at 28.
But less than a year later, the Court is rejecting, unanimously, “assumed facts” and requiring “close consideration of class certification”in the name of “limitations inherent in the judicial rulemaking process” and “the limited policymaking role of the courts” in Basile III.
There is no easy explanation for the differences between Samuel-Bassett and Basile III. It may be significant that Samuel-Bassett languished with the Court for 3 1/2 years after argument (during which time Basile II author Justice Greenspan left the bench), whereas Basile III was decided with lightening speed for the Court (4 months from May 8 argument to September 7 decision).
Some will always say, most particularly Plaintiff's counsel in Samuel-Bassett, that the two decisions can be distinguished purely on the grounds of "waiver," since the Samuel-Bassett Court concluded that defense trial counsel had waived objection to the molded verdict after trial. But Justice Saylor’s strong dissent in Samuel-Bassett argued that there was no waiver and that Samuel-Bassett would not be cited as a waiver case in the future. 34 A.3d at 64. Moreover, "waiver" usually gives appellate judges a quick exit, and yet Chief Justice Castille wrote an 80-page opinion in Samuel-Bassett that labored hard to justify the result, which certainly didn't conserve judicial resources, and is not convincing.
Others will say that the two decisions can't be reconciled. After all, Justice Saylor, who vehemently dissented in Samuel-Bassett, wrote for the unanimous court in Basile III. They will say there are now two alternative sets of policies in Pennsylvania: the "class actions are favored" rationale and acceptance of collectivized proof in Samuel-Bassett and the proscription against using procedural vehicles to change substantive law in Basile III – the second of which appears to line up better with the evolving federal standards articulated in Hydrogen Peroxide and Dukes.
It may be that, Justice Saylor, who is next in line to be Chief, will usher in a new era. Or perhaps the Court is slowly awakening to the misuse of the class action mechanism in circumstances where the effect is to relieve plaintiffs of the burden of proving all elements of their claims. Philadelphia has earned a reputation nationally for favoring plaintiffs in class actions that might not fly in other jurisdictions. See The City of Unbrotherly Torts, Wall St. J., Dec. 3, 2011 (noting that Philadelphia state court is a “destination of choice” for plaintiff classes due to fewer settlements and higher verdicts); see also Am. Tort Reform Found., Judicial Hellholes 2011-2012, at 3–8 (2011) (listing Philadelphia as the number one “judicial hellhole”); id. at 2 (“Judicial Hellholes have been considered places where judges systematically apply laws and court procedures in an unfair and unbalanced manner.”) (emphasis omitted); id. at 3 (“Of greatest concern is the Complex Litigation Center (CLC) in Philadelphia, where judges have actively sought to attract personal injury lawyers from across the state and the country.”). In Daniel v. Wyeth, Nos. 63-64 EDA 2011, before the Supreme Court from the decision of a panel of the Superior Court overturning the trial court's JNOV on punitive damages, Justice Castille was reported to have remarked that sustaining the award would result in Pennsylvania being labeled a "judicial hellhole." Legal Intelligencer, 9/12/12. Perhaps the Court finally has gotten the message.
Showing posts with label Class Action. Show all posts
Showing posts with label Class Action. Show all posts
Thursday, September 20, 2012
Friday, September 7, 2012
More New Stuff
Today’s post is of the “this and that” variety − dealing with things we’ve come across that we haven’t yet blogged about this week.
As defense counsel appreciate, PMA preemption post-Riegel floats like a butterfly and stings like a bee. Anybody representing PMA medical device clients will want to read (and cite) Ali v. Allergan USA, Inc., 2012 WL 3692396 (E.D. Va. Aug. 23, 2012). Ali involved a “lap band” − a PMA device that restricts the ability of the stomach to expand, used as a last-ditch weight control measure in cases of morbid obesity.
Ali involves several preemption issues, and is also good on TwIqbal and the Virginia Consumer Protection Act. On preemption, as usual the battleground was the so-called “parallel claim” exception. 2012 WL 3692396, at *7. Plaintiffs offered only “a series of conclusory allegations that that [defendant] violated federal law.” Id. Not surprisingly, that didn’t cut it. Thus, everything having to do with warnings was dismissed (albeit without prejudice). Id.
Plaintiffs contended that they based their negligence and implied warranty claims in a manufacturing defect. Again they faced TwIqbal. “[T]the plaintiff must allege sufficient facts to support both the inference that the defendant manufactured the device in a way that violated federal regulations and the inference that this violation resulted in the defect that caused the plaintiff's injuries.” Id. at *8. The manufacturing defect claim required: (1) that “the plaintiff identif[y] what went wrong in the manufacturing process and cite[] the relevant FDA manufacturing standards that were allegedly violated,” id., and (2) “sufficient facts to support the inference that the defendant's federal violations resulted in the defect that caused the plaintiff's injuries.” Id. at *9 (citations and quotation marks omitted). The Ali complaint didn’t come close, containing only “information and belief” allegations as to violations and nothing at all about causation. Id. at *10. As to what was violated, alleging “any regulations promulgated pursuant to the Act” somehow didn’t impress the court. Id. Nor do allegations that are nothing more than “simple recitations of regulatory language” enough. Id. at *11. Plaintiff can’t get away with copying sections of the Code of Federal Regulations. That the plaintiff was injured does not mean that an FDCA violation occurred:
2012 WL 3692396, at *11 (citations omitted).
The plaintiff threw in allegations that the defendant’s first try at PMA had been unsuccessful. The court essentially held “so what?” Even if PMA had at first failed, the defendant “obtained PMA more than eight years before it was first implanted in [plaintiff’s] body. Id. at *12. That there had been various recalls of similar models didn’t matter since none of them had involved the device in question or the risk in question. Id.
To get around TwIqbal, the plaintiffs in Ali trotted out Hofts v. Howmedica Osteonics Corp., 597 F. Supp.2d 830 (S.D. Ind. 2009), the case we love to hate. The judge in Ali hated Hofts almost as much as we do:
2012 WL 3692396, at *13
The plaintiffs in Ali made a premature demand for discovery before meeting their Rule 8 pleading requirements. The court had none of it, finding that request to be “precisely the sort of fishing expedition the Supreme Court [in TwIqbal] sought to avoid in requiring the plaintiff to plead facts demonstrating their entitlement to relief and the defendant's liability.” Id. at *14.
Ali also followed the majority rule on preemption of express warranty claims. If they impose duties on the purported warrantor that differ from or add to federal requirements, if they challenge the safety and effectiveness of the PMA device, or if they challenge the manufacturer’s FDA-approved labeling, express warranty claims are preempted. Id. at *15. The only way am express warranty claim survives is when there are allegations “based on representations made by the manufacturer about the device that was not approved by the FDA.” Id. at *16. The plaintiff didn’t plead anything of the sort, so the express warranty claims were also dismissed. Id.
We’ve also collected cases holding that consumer fraud claims involving drugs and medical devices fail under “regulated activity” safe harbor provisions in the relevant state statutes. Ali is another such case:
We’re somewhat less enamored with Romero v. Wyeth, C.A. No. 1:03-cv-13467, slip op. (E.D. Tex. Aug. 31, 2012), sent to us by Janelle Davis of Thompson & Knight, although we must admit Romero does have its moments.
Romero evaluates a variety of claims purportedly arising under Texas law, in the wake of the big win in Centocor, Inc. v. Hamilton, ___ S.W.3d ___, 2012 WL 2052783 (Tex. June 8, 2012). On the good side of the ledger, the court throws out all of the usual bread & butter claims in prescription drug product liability litigation − those involving failure to warn (specifically misrepresentation, fraud, negligence, misrepresentation, gross negligence, and consumer fraud). The Texas statutory presumption of adequacy of FDA-approved warnings controlled, no matter what form the defendant’s information took:
Romero, slip op. at 5.
That’s the good part of Romero. The parts responsible for our “you can’t get there from here” comment then follow. For one thing the court allows a naked failure to test claim to continue. Abundant precedent, including controlling precedent under Texas law, holds that “failure to test” isn’t a free-standing cause of action. The Texas Supreme Court dealt with such a claim in American Tobacco Co., Inc. v. Grinnell, 951 S.W.2d 420 (Tex. 1997), twice holding “failure to test” to be “inextricably intertwined” with failure to warn, and rising or falling with it:
Id. at 437.
Id. at 439. Then there’s the Fifth Circuit. In Dow Agrosciences LLC v. Bates, 332 F.3d 323, (5th Cir. 2003), reversed on other grounds, 544 U.S. 431 (2005) (preemption), the court held that, “a negligent testing claim is, as a matter of Texas law, a variation of an action for failure to warn.” Id. at 333. And again, in Skotak v. Tenneco Resins, Inc., 953 F.2d 909 (5th Cir. 1992):
Id. at 912 n.5 (affirming summary judgment).
Oh well, so much for appellate precedent. Citing general “reasonable care” negligence cases and an old asbestos case involving failure to warn, Romero concocts some sort of “independent negligence cause of action based upon [defendant’s] failure to test” that no Texas court has ever allowed. Slip op. at 7-8. It may be our favorite legal proposition, and it sure applies here - a federal court sitting in diversity is not supposed to invent new, expansive state-law causes of action.
Romero also allows a design defect claim, holding that Restatement (Second) of Torts §402A, comment k should be applied on a case by case basis. Slip op. at 11-12. It gets to that result by characterizing comment k as an “affirmative defense” even though no Texas law says so (we reiterate the Erie federalism point) and in Centocor the Texas Supreme Court unanimously and emphatically rejected a similar argument about the learned intermediary rule:
___ S.W.3d ___, 2012 WL 2052783, at *20. With comment k, the analysis is the same, only it involves design rather than warning claims. Several federal courts under Texas law cases have applied comment k to all prescription medical products, not requiring the individualized sort of product by product analysis demanded in Romero. Reyes v. Wyeth Laboratories, 498 F.2d 1264, 1273 (5th Cir. 1974) (vaccine); Woodhouse v. Sanofi-Aventis United States LLC, 2011 WL 3666595, at *3-4 (W.D. Tex. June 23, 2011); Holland v. Hoffman-La Roche, Inc., 2007 WL 4042757, at *3 (N.D. Tex. Nov. 15, 2007); Carter v. Tap Pharmaceuticals, Inc., 2004 WL 2550593, at *2 (W.D. Tex. Nov. 2, 2004); Hackett v. G.D. Searle & Co., 246 F. Supp.2d 591, 595 (W.D. Tex. 2002) (applying Texas law). Tellingly, Romero does not cite a single Texas prescription medical product case for its contrary proposition.
There’s more we could discuss but for now, suffice it to say that with respect to the non-warning claims, we don’t think Romero can get there from here under what Texas law really is rather than what plaintiffs might want it to be.
Finally, from our home turf here in Pennsylvania, we offer the decision in Boeynaems v. LA Fitness International, LLC, ___ F. Supp.2d ___, 2012 WL 3536306 (E.D. Pa. Aug. 16, 2012), which we received internally today. This is not a drug case, but it is a class action in which the plaintiffs were harassing the defendants with massive pre-certification discovery requests. The defendant asked the judge to require the plaintiffs to pay for that discovery themselves, and the court agreed, holding:
Id. at *11. The court essentially told the plaintiffs that they had to put up or shut up − no more one-way discovery, at least pre-certification in class actions:
Id.
We think that’s just about right. If the class isn’t certified because the claims are bogus, the defendant isn’t going to be able to recoup this sort of massive expense from the class plaintiffs, and the attorneys will try to walk away from the case. If the case is good, then the common fund doctrine will plaintiffs’ counsel recoup their expense. So as Ron Weasley might say, “put your Galleons where your gob is.”
Medical Device Preemption − The Greatest
As defense counsel appreciate, PMA preemption post-Riegel floats like a butterfly and stings like a bee. Anybody representing PMA medical device clients will want to read (and cite) Ali v. Allergan USA, Inc., 2012 WL 3692396 (E.D. Va. Aug. 23, 2012). Ali involved a “lap band” − a PMA device that restricts the ability of the stomach to expand, used as a last-ditch weight control measure in cases of morbid obesity.
Ali involves several preemption issues, and is also good on TwIqbal and the Virginia Consumer Protection Act. On preemption, as usual the battleground was the so-called “parallel claim” exception. 2012 WL 3692396, at *7. Plaintiffs offered only “a series of conclusory allegations that that [defendant] violated federal law.” Id. Not surprisingly, that didn’t cut it. Thus, everything having to do with warnings was dismissed (albeit without prejudice). Id.
Plaintiffs contended that they based their negligence and implied warranty claims in a manufacturing defect. Again they faced TwIqbal. “[T]the plaintiff must allege sufficient facts to support both the inference that the defendant manufactured the device in a way that violated federal regulations and the inference that this violation resulted in the defect that caused the plaintiff's injuries.” Id. at *8. The manufacturing defect claim required: (1) that “the plaintiff identif[y] what went wrong in the manufacturing process and cite[] the relevant FDA manufacturing standards that were allegedly violated,” id., and (2) “sufficient facts to support the inference that the defendant's federal violations resulted in the defect that caused the plaintiff's injuries.” Id. at *9 (citations and quotation marks omitted). The Ali complaint didn’t come close, containing only “information and belief” allegations as to violations and nothing at all about causation. Id. at *10. As to what was violated, alleging “any regulations promulgated pursuant to the Act” somehow didn’t impress the court. Id. Nor do allegations that are nothing more than “simple recitations of regulatory language” enough. Id. at *11. Plaintiff can’t get away with copying sections of the Code of Federal Regulations. That the plaintiff was injured does not mean that an FDCA violation occurred:
[T]he allegation that the [product] eroded does not, by itself, suggest that [defendant] violated federal requirements in manufacturing this device. At the time the [product] obtained PMA, the FDA was aware of [a] risk of erosion and [that it] could cause serious complications. . . . Ultimately, the FDA determined that [this risk] was a rare occurrence and that serious complication resulting from [it] was an even rarer occurrence, and approved the device despite these risks.
2012 WL 3692396, at *11 (citations omitted).
The plaintiff threw in allegations that the defendant’s first try at PMA had been unsuccessful. The court essentially held “so what?” Even if PMA had at first failed, the defendant “obtained PMA more than eight years before it was first implanted in [plaintiff’s] body. Id. at *12. That there had been various recalls of similar models didn’t matter since none of them had involved the device in question or the risk in question. Id.
To get around TwIqbal, the plaintiffs in Ali trotted out Hofts v. Howmedica Osteonics Corp., 597 F. Supp.2d 830 (S.D. Ind. 2009), the case we love to hate. The judge in Ali hated Hofts almost as much as we do:
This Court respectfully disagrees with the Hofts court’s application of the Rule 8 pleading standard. . . . This Court finds the Hofts court unusually lax in its application of the standard. In assessing the sufficiency of pleadings, district courts should not take conclusory allegations as true but must require factual support for any legal conclusions offered in pleadings. Requiring such factual enhancement does not constitute a heightened pleading standard; it is the basic pleading standard established in Rule 8 as interpreted in [TwIqbal]. Without factual allegations supporting inferences of the defendant’s liability and the plaintiff’s right to relief, pleadings fail to provide adequate notice of the grounds upon which the plaintiff's claim rests. In Hofts, the district court relaxed the facial plausibility standard out of existence with respect to the plaintiff's allegations that the defendant violated federal requirements. This Court declines to adopt that approach in the context of this case.
This Court also respectfully disagrees with the Hofts court’s approach to the breach of implied warranty claim, where the court placed the burden on the defendant to show that the claim imposed standards different from applicable federal requirements. Rule 8 places the burden of pleading a plausible claim for relief and the grounds for this claim on the claimant. . . . This Court agrees with the majority of federal courts in holding, post-Riegel, that the facial plausibility standard applies to the pleading of a federal violation in this context and requires facts indicating noncompliance with federal requirements on the manufacture of the device.
2012 WL 3692396, at *13
The plaintiffs in Ali made a premature demand for discovery before meeting their Rule 8 pleading requirements. The court had none of it, finding that request to be “precisely the sort of fishing expedition the Supreme Court [in TwIqbal] sought to avoid in requiring the plaintiff to plead facts demonstrating their entitlement to relief and the defendant's liability.” Id. at *14.
Ali also followed the majority rule on preemption of express warranty claims. If they impose duties on the purported warrantor that differ from or add to federal requirements, if they challenge the safety and effectiveness of the PMA device, or if they challenge the manufacturer’s FDA-approved labeling, express warranty claims are preempted. Id. at *15. The only way am express warranty claim survives is when there are allegations “based on representations made by the manufacturer about the device that was not approved by the FDA.” Id. at *16. The plaintiff didn’t plead anything of the sort, so the express warranty claims were also dismissed. Id.
We’ve also collected cases holding that consumer fraud claims involving drugs and medical devices fail under “regulated activity” safe harbor provisions in the relevant state statutes. Ali is another such case:
By its own terms, however, the VCPA does not apply to “[a]ny aspect of a consumer transaction which aspect is authorized under laws or regulations of this Commonwealth or the United States, or the formal advisory opinions of any regulatory body or official of this Commonwealth or the United States.” Va. Code Ann. §59.1-199(A).2012 WL 3692396, at *19. Gotta love it. Ali is the greatest.
Plaintiffs’ VCPA claim fails because it challenges conduct that is expressly excluded from the scope of the VCPA. Plaintiffs base their VCPA cause of action on representations made by [defendant] . . . in advertisements and other marketing materials concerning the safety and effectiveness of the device. Representations about the [PMA-approved device] in marketing materials for the device are authorized and regulated by the FDA under federal law. The VCPA, therefore, does not apply to it and therefore no action challenging [defendant’s] marketing practices . . . may be brought under the VCPA.
Prescription Drugs in Texas − You Can’t Get There from Here
We’re somewhat less enamored with Romero v. Wyeth, C.A. No. 1:03-cv-13467, slip op. (E.D. Tex. Aug. 31, 2012), sent to us by Janelle Davis of Thompson & Knight, although we must admit Romero does have its moments.
Romero evaluates a variety of claims purportedly arising under Texas law, in the wake of the big win in Centocor, Inc. v. Hamilton, ___ S.W.3d ___, 2012 WL 2052783 (Tex. June 8, 2012). On the good side of the ledger, the court throws out all of the usual bread & butter claims in prescription drug product liability litigation − those involving failure to warn (specifically misrepresentation, fraud, negligence, misrepresentation, gross negligence, and consumer fraud). The Texas statutory presumption of adequacy of FDA-approved warnings controlled, no matter what form the defendant’s information took:
“[I]f a claim is based upon a product’s labeling, its omissions, or inaccuracies, it falls under this purview of the [statutory presumption]. . . . [Plaintiff] seeks to distinguish failure to warn claims based upon a drug manufacturer’s statements in a warning label from those premised on other representations contained, for example, in promotional and marketing materials. . . . Because [plaintiff] cites no other authority [besides the lower court decision reversed in Centocor] for the proposition that [the statute’s] provisions should be so strictly applied, the court declines to make such a determination here. Accordingly, whether [plaintiff’s] failure to warn claims are based on statements made in [defendant’s] labeling or promotional materials, they fall within the purview of [the statutory presumption of adequacy].
Romero, slip op. at 5.
That’s the good part of Romero. The parts responsible for our “you can’t get there from here” comment then follow. For one thing the court allows a naked failure to test claim to continue. Abundant precedent, including controlling precedent under Texas law, holds that “failure to test” isn’t a free-standing cause of action. The Texas Supreme Court dealt with such a claim in American Tobacco Co., Inc. v. Grinnell, 951 S.W.2d 420 (Tex. 1997), twice holding “failure to test” to be “inextricably intertwined” with failure to warn, and rising or falling with it:
The [plaintiffs’] negligent testing claim is predicated on [defendant’s] duty to test and ascertain the dangers inherent in its products about which it must warn consumers. Because the negligent testing claim is inextricably intertwined with the [plaintiffs’] negligent failure to warn claim, we hold that summary judgment was also proper on this claim.
Id. at 437.
The [plaintiffs’] negligent testing claim is also preempted. . . . [Their] negligent testing claim is inextricably intertwined with advertising and promotional materials because the [plaintiffs] allege only that [defendant] should have tested its products to determine the dangerous characteristics about which [defendant] should have warned consumers.
Id. at 439. Then there’s the Fifth Circuit. In Dow Agrosciences LLC v. Bates, 332 F.3d 323, (5th Cir. 2003), reversed on other grounds, 544 U.S. 431 (2005) (preemption), the court held that, “a negligent testing claim is, as a matter of Texas law, a variation of an action for failure to warn.” Id. at 333. And again, in Skotak v. Tenneco Resins, Inc., 953 F.2d 909 (5th Cir. 1992):
[N]egligence claims, such as the alleged failure to adequately test [the product], are subsumed within this two-part standard. . . . [Plaintiffs] were required to prove that an inadequate warning was given and that the inadequate warning was the cause of the injury. [Plaintiffs] do not argue otherwise, nor do they assert here an independent, or separate, negligence claim.
Id. at 912 n.5 (affirming summary judgment).
Oh well, so much for appellate precedent. Citing general “reasonable care” negligence cases and an old asbestos case involving failure to warn, Romero concocts some sort of “independent negligence cause of action based upon [defendant’s] failure to test” that no Texas court has ever allowed. Slip op. at 7-8. It may be our favorite legal proposition, and it sure applies here - a federal court sitting in diversity is not supposed to invent new, expansive state-law causes of action.
“[I]n hazarding an Erie guess, our task is to attempt to predict state law, not to create or modify it. The practical effect of adopting an exception like the one [plaintiffs] propose is the creation of a previously nonexistent state law cause of action. Therefore, [plaintiffs] carry a heavy burden to assure us that we would not be making law.Memorial Hermann Healthcare System Inc. v. Eurocopter Deutschland, GmbH, 524 F.3d 676, 678 (5th Cir. 2008) (applying Texas law). We’re sure there’s plenty more where that comes from.
Romero also allows a design defect claim, holding that Restatement (Second) of Torts §402A, comment k should be applied on a case by case basis. Slip op. at 11-12. It gets to that result by characterizing comment k as an “affirmative defense” even though no Texas law says so (we reiterate the Erie federalism point) and in Centocor the Texas Supreme Court unanimously and emphatically rejected a similar argument about the learned intermediary rule:
The learned-intermediary doctrine is not an affirmative defense. . . . While the learned intermediary doctrine shifts the manufacturer’s duty to warn the end user to the intermediary, it does not shift the plaintiff’s basic burden of proof. Doing so would create an anomalous situation where, once the defendant prescription-drug manufacturer invokes the learned intermediary doctrine, the plaintiff would be relieved of proving a key burden in any product warning case - that the product warning was inadequate.
___ S.W.3d ___, 2012 WL 2052783, at *20. With comment k, the analysis is the same, only it involves design rather than warning claims. Several federal courts under Texas law cases have applied comment k to all prescription medical products, not requiring the individualized sort of product by product analysis demanded in Romero. Reyes v. Wyeth Laboratories, 498 F.2d 1264, 1273 (5th Cir. 1974) (vaccine); Woodhouse v. Sanofi-Aventis United States LLC, 2011 WL 3666595, at *3-4 (W.D. Tex. June 23, 2011); Holland v. Hoffman-La Roche, Inc., 2007 WL 4042757, at *3 (N.D. Tex. Nov. 15, 2007); Carter v. Tap Pharmaceuticals, Inc., 2004 WL 2550593, at *2 (W.D. Tex. Nov. 2, 2004); Hackett v. G.D. Searle & Co., 246 F. Supp.2d 591, 595 (W.D. Tex. 2002) (applying Texas law). Tellingly, Romero does not cite a single Texas prescription medical product case for its contrary proposition.
There’s more we could discuss but for now, suffice it to say that with respect to the non-warning claims, we don’t think Romero can get there from here under what Texas law really is rather than what plaintiffs might want it to be.
We Think That’s About Right
Finally, from our home turf here in Pennsylvania, we offer the decision in Boeynaems v. LA Fitness International, LLC, ___ F. Supp.2d ___, 2012 WL 3536306 (E.D. Pa. Aug. 16, 2012), which we received internally today. This is not a drug case, but it is a class action in which the plaintiffs were harassing the defendants with massive pre-certification discovery requests. The defendant asked the judge to require the plaintiffs to pay for that discovery themselves, and the court agreed, holding:
[T]he Court mandates cost allocation as fair and appropriate. The Court concludes that where (1) class certification is pending, and (2) the plaintiffs have asked for very extensive discovery, compliance with which will be very expensive, that absent compelling equitable circumstances to the contrary, the plaintiffs should pay for the discovery they seek.
Id. at *11. The court essentially told the plaintiffs that they had to put up or shut up − no more one-way discovery, at least pre-certification in class actions:
If the plaintiffs have confidence in their contention that the Court should certify the class, then the plaintiffs should have no objection to making an investment. Where the burden of discovery expense is almost entirely on the defendant, principally because the plaintiffs seek class certification, then the plaintiffs should share the costs.
Id.
We think that’s just about right. If the class isn’t certified because the claims are bogus, the defendant isn’t going to be able to recoup this sort of massive expense from the class plaintiffs, and the attorneys will try to walk away from the case. If the case is good, then the common fund doctrine will plaintiffs’ counsel recoup their expense. So as Ron Weasley might say, “put your Galleons where your gob is.”
Friday, July 20, 2012
Notes on Settlement Classes
This month, we’ve seen a couple of cases dealing with class action settlements and neither of them, frankly, leaves us with much confidence in the process. We’re referring to Dennis v. Kellogg Co., ___ F.3d ___, 2012 WL 2870128 (9th Cir. July 13, 2012), and In re Budeprion XL Marketing & Sales Litigation, 2012 WL 2527021 (E.D. Pa. July 2, 2012).
The Ninth Circuit Dennis (we’d add “the Menace” to the name) case involved food, not drugs. It is a poster child for the abuse of “cy pres” distribution in a class action settlement − so much so that even the Ninth Circuit, notoriously liberal on such things, couldn’t stomach it. California has become a center of food class action litigation, and in this particular instance the charge was that the defendant advertised certain cereals as “scientifically proven to improve children's cognitive functions for several hours after breakfast.” 2012 WL 2870128, at *1. For present purposes it doesn’t matter whether the allegation has any merit or not, since the action was settled.
But what a settlement:
According to class counsel, the total amount of refunds paid from the claims-made fund was $800,000. Id. at *2 n.1. Even though this figure was unverified and counsel had every incentive to overstate the payout, we’ll take it as face value.
Thus, of the nominal $9.75 million in value that purportedly changed hands (we’ll pass over the interesting discussion of the “value” of $5 million in-kind contribution, its tax deductibility, and whether the donation would have been made in any event, see id. at *7), all of $800,000 went to the supposed class. That’s a little more than 8%.
The attorneys for the class took home two and a half times more dollars than did the entire class. Divided by the hours the class attorneys spent, they received an hourly rate of $2100 − that’s right, over two-thousand dollars an hour. 2012 WL 2870128, at *1.
On top of that, the injunctive relief was worthless to the class, since membership in the class was defined as past purchasers (during the time of the challenged ads) and the injunction only governed future conduct. Any overlap between past and future cereal purchasers was entirely coincidental and had nothing to do with the structure of the class settlement.
Notice was by publication only − with the usual excuse that it would be too expensive to let class members actually know that most of their supposed recovery was going to other people.
How could money supposedly owed to a class be given away to others not involved in the litigation in any way (putting aside the $2100 per hour fee)? Welcome to the wonderful world of cy pres.
Cy pres is a doctrine of convenience, made up by courts to give away money theoretically owed to unwitting members of questionable classes to others who have the advantage of not costing anything to identify. Its real purpose is, as in Dennis, is to inflate the denominator of a class action settlement to justify a higher fee, even though the litigation itself is incapable of benefiting the purportedly injured class directly. As stated in Dennis:
2012 WL 2870128, at *4. That's "indirectly" as in "not at all."
Cy pres started out with residual − so-called “unclaimed” − funds, such as the remaining $1.95 million in the “refund” pot in Dennis. But the doctrine has metastisized to include the practice of simply giving class funds to charities from the get-go (in Dennis the $5 million in in-kind food) without any pretense of it ever belonging to the supposed plaintiffs in the class.
One major reason for both the creation and metastisis of cy pres is, of course, unduly permissive substantive law. When the law is interpreted in such a way as to allow minuscule claims by unidentifiable plaintiffs − as the California consumer protection statutes have been − such rulings will inevitably create pressure for corresponding distortions of procedural law. But even cy pres is supposed to have some limits. One is that the charities have something to do with the class:
2012 WL 2870128, at *4 (citations and quotation marks omitted).
What was the supposed nexus between cereal buyers and feeding the indigent?
According to class counsel food is food is food. That was too much, even for the liberal Ninth Circuit:
Id. at *6.
That was good as far as it went, but then what? Did the court shut down the litigation by pointing out its bogus nature since the supposedly injured persons could never be identified? Did the court hold that this kind of claim was ill-suited to litigation at all and should be pursued, if at all, by the responsible government agencies?
No, of course not. This is the Ninth Circuit.
Dennis simply suggests that different charities would have been more appropriate:
2012 WL 2870128, at *6.
Amazing. What the court suggests as “appropriate” is that class action lawyers divert client funds to supposed charities “dedicated to . . . redressing injuries caused by false advertising.” Heck, in the rest of the country class action lawyers at least have to pay for their own advertising. After Dennis they can found non-profits and use money ostensibly belonging to their purported clients to bring in more business − a self-perpetuating litigation machine.
Cy pres is one of a number of purely utilitarian things that courts have done over the years to encourage the proliferation of mass litigation. There’s no basis in any statute or common-law tort doctrine for it. Its source is murky at best − an analogy to equitable powers involving trusts and estates (that is, voluntary bequests, as opposed to damages extracted through litigation):
Dennis, 2012 WL 2870128, at *4. "Frequently." But as Dennis pointed out "saying it repeatedly does not make it so."
The alternative, of course, would be for courts to admit that some disputes simply do not belong in the judicial system, at least as private suits. That’s what we have regulators for − to step in for the public as a whole and fine wrongdoers in cases of prohibited conduct, regardless of injury. But that result would mean no attorneys fees, and also no sycophantic charities knocking at the door and awarding “honors” to their patrons, those being the lawyers and judges.
We’d love to see one of these cy pres cases get to the Supreme Court. We think cy pres could be the Lexecon (that is the Lexecon, Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26 (1998), decision reining in another form of ultra vires judicial action) of the Twenty-First Century, that is if another of our pet peeves (cost assessment orders against non-parties) doesn't make it there first.
The second recent class action settlement case that caught our eye is In re Budeprion Xl Marketing & Sales Litigation, 2012 WL 2527021 (E.D. Pa. July 2, 2012). This one does involve drugs − generic drugs − and for that reason it shouldn’t have been settled at all, but rather dismissed. The claims (allegations of failure to warn that the generic version of a drug supposedly wasn’t really as safe or effective as the original branded version) were flat out preempted by PLIVA, Inc. v. Mensing, 131 S. Ct. 2567 (2011) − indeed the Budeprion claims were if anything worse than Mensing, because they implicitly challenged the validity of the drug’s ANDA approval ab initio (that’s legal Latin for “from the beginning”). Since Mensing held that discrepant warnings were preemptive conflicts, challenging the very existence of the generic drug is a lot bigger conflict justifying preemption even more strongly.
It so happens that Mensing came down in the middle of the lengthy Budeprion litigation. 2012 WL 2527021, at *4. We won’t characterize the ensuing negotiations, because we weren’t there, but the result was a another class action settlement that, like Dennis, leaves us scratching our heads.
In Budeprion it’s a mandatory Rule 23(b)(2) class action settlement of economic loss claims under the same California consumer fraud statute at issue in Dennis. But….
First, the class definition appears “unascertainable” − that’s legal lingo for a class being defined in such a way that simply to determine who the members are involves an individualized inquiry into each class member’s circumstances. The litigation involves “a class of individuals who had taken [the generic drug] and whose conditions had worsened after switching to the drug.” Id. at *3 (emphasis added). The problem in Budeprion is that, while only consumer fraud (economic loss) claims were pursued, it’s still a personal injury case in disguise − to determine class membership, one has to determine whether any given purchaser’s medical condition “worsened” − that’s an individualized inquiry.
Second, the nature of the claims being settled is unclear and perhaps illusory. Budeprion purports to be a nationwide class settlement, 2012 WL 2527021, at *5 (“[a]ll individuals in the United States”), but it also appears to be brought entirely under California consumer protection statute. Id. at *7 (“in violation of California consumer protection laws”), *8 (“Plaintiffs sought to bring this litigation as a nationwide class action applying California law.”). However, the California consumer protection statute can’t be used that way − it doesn’t have extraterritorial application beyond the boundaries of that state. See Sullivan v. Oracle Corp., 254 P.3d 237, 248 (Cal. 2011) (“[n]either the language of the UCL nor its legislative history provides any basis for concluding the Legislature intended the UCL to operate extraterritorially”). So to the extent that the class extends beyond California (which it certainly is presented as doing), it settles claims that the non-California members of the putative class can’t have (under California law), while possibly (we’re not sure) precluding claims that the other class members might actually have (under analogous statutes of states where the members live).
Third, exactly zero dollars changes hands. The mandatory class ((b)(2) plaintiffs have no opt out rights) gets nothing except “injunctive relief.” See 2012 WL 2527021, at *5 (points a-g). Here we see the impact of Wal-Mart v. Dukes, 131 S. Ct. 2541 (2011), which essentially prohibits the use of (b)(2) mandatory classes for awarding money. The case for any injunctive relief sounds pretty thin, since the defendant was apparently doing these things anyway. Budeprion, 2012 WL 2527021, at *19.
Moreover, the Budeprion settlement suffers from the same fundamental incongruity between the class and the relief that we mentioned with respect to Dennis − the injunction doesn’t benefit the class because while the class consists of past buyers, the injunction restrains only future conduct. Any benefit that the class members receive from the injunction is purely coincidental. We blogged not too long ago about Haggard v. Endogastric Solutions, Inc., 2012 U.S. Dist. Lexis 89767 (W.D. Pa. June 28, 2012), where we think the court got it right about (b)(2) “injunctive” classes:
Id. at *20 (emphasis original).
So in Budeprion the class gets nothing from the settlement. We’re not sure what the defendant gets either, since it’s unclear from the opinion whether the same claims brought under the consumer fraud claims of the 49 states that aren’t California are or are not barred. But as in Dennis, somebody does walk away with a lot of cold, hard cash:
2012 U.S. Dist. Lexis 89767, at *20.
There are plenty of reasons we don’t like class actions − litigated or settled − Dennis and Budeprion are two of them. These settlements are worse than the coupon gimmicks banned by CAFA.
- A “claims-made” fund of $2.75 million where class members able to prove their purchases could get up to $15 (three boxtops) in refunds. Anything left over would be distributed cy pres to “charities chosen by the parties and approved by the court.” Id. at *2.
- An in-kind cy pres distribution of “$5 million worth” of the defendant’s food “to charities that feed the indigent,” with valuation apparently left to the defendant (although this is not clear). Id.
- The defendant would refrain from making the challenged claim for three years, but would be allowed to make a related claim of “11% better attentiveness” proven by “clinical studies.” Id.
- Counsel fees for class counsel of $2 million. Id.
Used in lieu of direct distribution of damages to silent class members, this [cy pres] alternative allows for aggregate calculation of damages, the use of summary claim procedures, and distribution of unclaimed funds to indirectly benefit the entire class.
2012 WL 2870128, at *4. That's "indirectly" as in "not at all."
Cy pres started out with residual − so-called “unclaimed” − funds, such as the remaining $1.95 million in the “refund” pot in Dennis. But the doctrine has metastisized to include the practice of simply giving class funds to charities from the get-go (in Dennis the $5 million in in-kind food) without any pretense of it ever belonging to the supposed plaintiffs in the class.
Not just any worthy recipient can qualify as an appropriate cy pres beneficiary. To avoid the many nascent dangers to the fairness of the distribution process, we require that there be a driving nexus between the plaintiff class and the cy pres beneficiaries.
2012 WL 2870128, at *4 (citations and quotation marks omitted).
What was the supposed nexus between cereal buyers and feeding the indigent?
According to class counsel food is food is food. That was too much, even for the liberal Ninth Circuit:
[C]ounsel frequently asserted that donating food to charities who feed the indigent relates to the underlying class claims because this case is about “the nutritional value of food.” With respect, that is simply not true, and saying it repeatedly does not make it so. The complaint nowhere alleged that the cereal was unhealthy or lacked nutritional value. And no law allows a consumer to sue a company for selling cereal that does not improve attentiveness.
Id. at *6.
Thus, appropriate cy pres recipients are not charities that feed the needy, but organizations dedicated to protecting consumers from, or redressing injuries caused by, false advertising.
2012 WL 2870128, at *6.
Amazing. What the court suggests as “appropriate” is that class action lawyers divert client funds to supposed charities “dedicated to . . . redressing injuries caused by false advertising.” Heck, in the rest of the country class action lawyers at least have to pay for their own advertising. After Dennis they can found non-profits and use money ostensibly belonging to their purported clients to bring in more business − a self-perpetuating litigation machine.
Although the cy pres doctrine originated in the area of wills as a way to effectuate the testator’s intent in making charitable gifts, federal courts now frequently apply it in the settlement of class actions where the proof of individual claims would be burdensome or distribution of damages costly.
Dennis, 2012 WL 2870128, at *4. "Frequently." But as Dennis pointed out "saying it repeatedly does not make it so."
Even more essentially fatal to his motion for certification under (b)(2) is that Plaintiff only seeks to enjoin Defendant from making representations to future potential [product using] patients; i.e., to individuals who are not members of the class as defined.
Id. at *20 (emphasis original).
For their efforts, Class counsel seek $4.5 million in attorneys' fees, costs, and incentive awards to certain class representatives. Specifically, Class counsel request $3.2 million in fees, $1.3 million in costs, and $55,000 in incentive awards to nine named Class representatives.
2012 U.S. Dist. Lexis 89767, at *20.
Thursday, July 19, 2012
Still Standing
About a year ago we reported on the dismissal of what we characterized as a “really bogus” attempted class action in In re McNeil Consumer Healthcare Marketing & Sales Practices Litigation, 2011 WL 2802854 (E.D. Pa. July 15, 2011) (“MCH”). We distilled the 2011 MCH opinion down into four “simple rules” for pleading:
We noted at the end of that post that the court in MCH had granted leave to amend, but speculated that the plaintiffs − even though enjoying the excellent representation characteristic of multidistrict proceedings − might well flunk TwIqbal again because they were more interested in alleging something that had a prayer of being certified as a class than they were in stating a claim in the first place.
It turns out we were right.
In In re McNeil Consumer Healthcare Marketing & Sales Practices Litigation, 2012 WL 2885932 (E.D. Pa. July 13, 2012) (“MCH II”), the court threw out the complaint for a second time − this time for keeps. Once again the plaintiffs failed to allege any personalized injury to themselves that would justify them having standing to sue in federal court. Focused primarily on avoiding individualized issues (such as reliance and fact of injury) that would preclude class certification, the MCH II plaintiffs pleaded themselves out of court (thus making it very simple for their counsel to wash their hands of their “clients” altogether). Moreover, given the Third Circuit’s intervening standing decision in In re Schering Plough Corp. Intron/Temodar Consumer Class Action, 678 F.3d 235 (3d Cir. 2012), we have to like the defendants’ chances on appeal.
The MCH litigation ostensibly involved the recall of certain products (mostly over-the-counter) due to quality control problems at the defendant’s facility. The defendant offered full refunds to anyone who purchased a recalled product. However, the plaintiffs couldn’t bring themselves to limit their claims just to those products, and tried to attack every product ever made in that facility, whether it was recalled or not − hence our Simple Rule #2. Nothing changed in this regard the second time around.
For simplicity sake, we (like the MCP II opinion) will move from our four simple rules to the four categories of plaintiffs left in their repleaded complaint: (1) purchasers of products that were never recalled; (2) purchasers of recalled products who requested a refund; (3) purchasers of recalled products who didn’t bother to request a refund; and (4) supposed purchasers who threw away the product and couldn’t tell if they bought a recalled product or not.
Nobody claimed any personal injury of any sort (which would have made class certification impossible), so as it turned out none of them had standing to sue. MCH II thus drove these money-grubbers from the temple of justice. Hallelujah!
As to the first category − the non-recalled product plaintiffs − the basic problem was the same as before. Purchasers of unrecalled products that had not harmed them didn’t allege any injury that was cognizable in any court:
MCH II, 2012 WL 2885932, at *15 (various things omitted).
As to the second category − the recall/refund plaintiffs − this group had no standing because the refund had redressed their damages. Complaints about the recall process were irrelevant:
Id. (emphasis original). “Critically, no plaintiff has alleged that he or she sought a refund for recalled products and was denied one, or that any refund actually received did not fully cover the price paid for a recalled product.” Id. at *16. Of course no plaintiff stated that − it would have underscored the individualized nature of the inquiry and defeated class certification, not to mention left counsel with a pesky (and uneconomic) individual claim to litigate thereafter. So bye-bye recall particpants.
As to the third category − the recall/can’t be bothered plaintiffs − their alleged problems were, to put it bluntly, their own darn fault. Or, as the court held:
MCH II, 2012 WL 2885932, at *18. Other persons’ supposed difficulties in obtaining refunds were irrelevant because − to avoid a fatal class certification problem − none of these plaintiffs pleaded reliance. Id. (“these plaintiffs have not even alleged that their awareness of potentially inadequate refund offers caused them not to seek a refund”). Those who failed to seek a refund suffered injury as a “result of the plaintiffs’ own choices” and had no damages “fairly traceable to the actions of the defendants.” Id.
As to the fourth and final category − the throw-away plaintiffs − the defendants weren’t at fault because there was no evidence that they encouraged the plaintiffs to spoliate their own evidence:
MCH II, 2012 WL 2885932, at *19. These plaintiffs claimed that throwing the product away was “normal consumer behavior.” Id. Maybe so, but that “normal” behavior simply wasn’t the defendant’s fault. Id. (such facts “do not give rise to a plausible inference that these plaintiffs’ injuries are fairly traceable to the conduct of the defendants”).
Finally, note that word − “plausible” − that’s TwIqbal-speak. Another thing we’ve noted in MCH II is its application of TwIqbal pleading standards to standing. See 2012 WL 2885932, at *13, following Schering Plough, 678 F.3d at 244, for the proposition that a “court must apply a ‘plausibility’ standard when analyzing . . . standing.” We don’t know whether this is controversial, as Rule 12(b)(1) isn’t that far away from Rule 12(b)(6), but to the extent it’s an issue, MCH II decided it in favor of TwIqbal.
Anyway, kudos to the defense in MCH. We were on a conference call today where it was mentioned that MDL class action plaintiffs’ counsel need an average seven-figure recovery per case to make a profit. They didn’t get a dime here, and that’s the best form of deterrence (short of Rule 11) that there is.
Simple rule #1: If you didn’t buy the product, you can’t claim economic loss from purchasing it.
Simple rule #2: There has to be something wrong with the product before you can sue over it.
Simple rule #3: What you didn’t buy can’t cause you any injury from its mere purchase. See simple rule #1.
Simple rule #4: Don’t allege physical impossibilities.
We noted at the end of that post that the court in MCH had granted leave to amend, but speculated that the plaintiffs − even though enjoying the excellent representation characteristic of multidistrict proceedings − might well flunk TwIqbal again because they were more interested in alleging something that had a prayer of being certified as a class than they were in stating a claim in the first place.
It turns out we were right.
In In re McNeil Consumer Healthcare Marketing & Sales Practices Litigation, 2012 WL 2885932 (E.D. Pa. July 13, 2012) (“MCH II”), the court threw out the complaint for a second time − this time for keeps. Once again the plaintiffs failed to allege any personalized injury to themselves that would justify them having standing to sue in federal court. Focused primarily on avoiding individualized issues (such as reliance and fact of injury) that would preclude class certification, the MCH II plaintiffs pleaded themselves out of court (thus making it very simple for their counsel to wash their hands of their “clients” altogether). Moreover, given the Third Circuit’s intervening standing decision in In re Schering Plough Corp. Intron/Temodar Consumer Class Action, 678 F.3d 235 (3d Cir. 2012), we have to like the defendants’ chances on appeal.
The MCH litigation ostensibly involved the recall of certain products (mostly over-the-counter) due to quality control problems at the defendant’s facility. The defendant offered full refunds to anyone who purchased a recalled product. However, the plaintiffs couldn’t bring themselves to limit their claims just to those products, and tried to attack every product ever made in that facility, whether it was recalled or not − hence our Simple Rule #2. Nothing changed in this regard the second time around.
For simplicity sake, we (like the MCP II opinion) will move from our four simple rules to the four categories of plaintiffs left in their repleaded complaint: (1) purchasers of products that were never recalled; (2) purchasers of recalled products who requested a refund; (3) purchasers of recalled products who didn’t bother to request a refund; and (4) supposed purchasers who threw away the product and couldn’t tell if they bought a recalled product or not.
Nobody claimed any personal injury of any sort (which would have made class certification impossible), so as it turned out none of them had standing to sue. MCH II thus drove these money-grubbers from the temple of justice. Hallelujah!
As to the first category − the non-recalled product plaintiffs − the basic problem was the same as before. Purchasers of unrecalled products that had not harmed them didn’t allege any injury that was cognizable in any court:
[P]laintiffs here rely upon the experiences of other individuals to establish that the drugs they purchased were defective. This they cannot do. . . . The fact that other persons suffered adverse effects, or that the defendants recalled some products that were manufactured in the same facility as the drugs they purchased, does not suffice to establish injury in fact as to this group.
MCH II, 2012 WL 2885932, at *15 (various things omitted).
As to the second category − the recall/refund plaintiffs − this group had no standing because the refund had redressed their damages. Complaints about the recall process were irrelevant:
As with the plaintiffs who purchased non-recalled products, this group may not rely on the experiences of other individuals to establish injury. The defendants have offered the plaintiffs a cash refund as to all products that have been recalled. A named plaintiff must allege facts showing that he or she personally suffered economic loss as a result of an inadequate recall to state a cognizable injury.
Id. (emphasis original). “Critically, no plaintiff has alleged that he or she sought a refund for recalled products and was denied one, or that any refund actually received did not fully cover the price paid for a recalled product.” Id. at *16. Of course no plaintiff stated that − it would have underscored the individualized nature of the inquiry and defeated class certification, not to mention left counsel with a pesky (and uneconomic) individual claim to litigate thereafter. So bye-bye recall particpants.
As to the third category − the recall/can’t be bothered plaintiffs − their alleged problems were, to put it bluntly, their own darn fault. Or, as the court held:
To find that these plaintiffs have been injured with respect to their purchases of recalled products, the Court would have to assume that if the plaintiffs requested a refund, they would be denied one, or that the refund offered would be inadequate to make them whole. When such speculation is required as to the causal link between the behavior of a defendant and an injury of the plaintiff, no standing exists.
MCH II, 2012 WL 2885932, at *18. Other persons’ supposed difficulties in obtaining refunds were irrelevant because − to avoid a fatal class certification problem − none of these plaintiffs pleaded reliance. Id. (“these plaintiffs have not even alleged that their awareness of potentially inadequate refund offers caused them not to seek a refund”). Those who failed to seek a refund suffered injury as a “result of the plaintiffs’ own choices” and had no damages “fairly traceable to the actions of the defendants.” Id.
As to the fourth and final category − the throw-away plaintiffs − the defendants weren’t at fault because there was no evidence that they encouraged the plaintiffs to spoliate their own evidence:
No plaintiff who has alleged that he or she discarded products “because of the recall” alleges that he or she did so because of any instructions given by the defendants. As with plaintiffs who purchased recalled products but did not seek a refund, any injury suffered by this group is not traceable to the defendants’ conduct.
MCH II, 2012 WL 2885932, at *19. These plaintiffs claimed that throwing the product away was “normal consumer behavior.” Id. Maybe so, but that “normal” behavior simply wasn’t the defendant’s fault. Id. (such facts “do not give rise to a plausible inference that these plaintiffs’ injuries are fairly traceable to the conduct of the defendants”).
Finally, note that word − “plausible” − that’s TwIqbal-speak. Another thing we’ve noted in MCH II is its application of TwIqbal pleading standards to standing. See 2012 WL 2885932, at *13, following Schering Plough, 678 F.3d at 244, for the proposition that a “court must apply a ‘plausibility’ standard when analyzing . . . standing.” We don’t know whether this is controversial, as Rule 12(b)(1) isn’t that far away from Rule 12(b)(6), but to the extent it’s an issue, MCH II decided it in favor of TwIqbal.
Anyway, kudos to the defense in MCH. We were on a conference call today where it was mentioned that MDL class action plaintiffs’ counsel need an average seven-figure recovery per case to make a profit. They didn’t get a dime here, and that’s the best form of deterrence (short of Rule 11) that there is.
Monday, July 2, 2012
Another Personal Injury Class Action Goes Down in Flames
The thing about personal injury claims is that they’re personal. Each case has distinctive details, such as why the plaintiff used the product, what she relied on, what harm resulted, and what caused the harm. That’s why personal injury claims are not fit for class treatment. They are almost never certified.
In fact, nowadays, they are not only rejected; they are rejected hard. That’s what happened in Haggard v. Endogastric Solutions, Inc., 2012 U.S. Dist. LEXIS 89767 (W.D. Pa. June 28, 2012). The defendant manufactures a device (EsophyX) that is inserted without an incision to treat GERD. The plaintiff had it inserted, choosing it over a competitor’s surgically implanted device (Nissen). When the device didn’t work, his doctor couldn’t completely remove it, and the plaintiff claimed that this eliminated certain other treatment options that had been available to him. He reluctantly tried the competitor’s Nissen device, but his symptoms got worse. Plaintiff then filed his class action, claiming that the defendant had misrepresented that the insertion procedure was reversible, when in fact it was only “revisable” (apparently something less than reversible). Id. at *1-3.
If this sounds like a situation rife with unique personal facts, that’s because it is. And so plaintiff’s attempt to put a class together failed miserably.
Plaintiff first tried to certify a class that consisted of everyone who had used the defendant’s device. The court rejected this class for a bunch of reasons, many of which are obvious. It failed the “typicality” requirement. The class rep had “marked” differences with the other putative class members as to the information received and relied upon, as well as the harm suffered, particularly given that plaintiff admitted that, unlike with him, the device worked for most of the class members:
Evidence of record indicates there would be numerous, inevitable questions regarding the information received by individual patients - from their physicians or other sources - and their reliance on particular representations. . . . More importantly for purposes of a typicality analysis, Plaintiff’s theory of harm because he was informed as to and relied on representations of its “reversibility” in electing a surgical procedure is harm of a fundamentally different nature - i.e., it is different in kind - from the inchoate harm, if any, of being subject to misrepresentations in the abstract.
Id. at *14, *17.
That’s enough to doom this case. But the court went on to say that under Dukes the class would have failed “commonality” for these same reasons. Id. at *13-14 n.5. It would have failed "adequacy" of representation because plaintiff’s counsel had a conflict representing class members who had successful surgeries and those who did not. Id. at *19 n. 10. It couldn’t be certified under FRCP 23(b)(2) because that subsection is reserved for claims primarily seeking injunctive or declaratory relief, yet plaintiff was primarily seeking “monetary relief.” Id. at *20.
There’s more. The class failed FRCP 23(b)(3)’s predominance requirement because, as we said, personal injury claims are personal. Individual, not class-wide, issues predominated:
In this case, reliance on Defendant’s alleged misrepresentations in electing to undergo the . . . procedure is central; it is the lynchpin of damages. . . . But the evidence of record indicates that (1) putative class members received information regarding the procedure primarily from their physicians, which information likely varied for reasons related to both the physicians themselves and the individual patient’s medical circumstances; (2) the amount and content of information received by a patient directly from Defendant’s marketing or other materials likely differed from Plaintiff’s and as between putative class members as well; and (3) individual decisions to undergo the procedure were likely influenced by and premised on varying individual considerations. In addition, it is not immediately apparent that prospective EsophyX patients would ordinarily place substantial emphasis on reversibility in view of the fact that the procedure was offered as a less intrusive alternative to the Nissen procedure, so that in the infrequent event EsophyX was unsuccessful, progression to the Nissen - rather than attempted reversal - would be, as it was for Plaintiff, the recommended course. . . . The resultant injury/harm is also, of course, central to this case and it too raises a multitude of individual, as opposed to, common issues.
Id. at *23-25. That’s a lot of differences.
It also failed FRCP 23(b)(3)’s “superiority” requirement:
[I]n light of the extent to which determinations would need to be made on an individual basis, adjudicating the claims as a class would be unlikely to reduce litigation or preserve judicial resources. To the contrary, individual questions of information received, reliance, and actual injury would require extensive individual assessments and significant trial time would likely have to be devoted to their resolution.
Id. at *27-28. In other words, this case had no business being a class action.
Plaintiff didn’t give up, though. He tried to hide all these individual differences and certify an alternative class that included only patients who relied on the defendant’s alleged misrepresentation that insertion of the device was reversible. This was a “non-starter.” Id. at *7.
Individual differences can’t simply be swept away to create a class action. They were still there, and they were still a problem. This sleight of hand only shifted the determination of these individualized issues from a merits analysis to a class membership analysis, making the class itself “untenable because it is not objectively, reasonably ascertainable”:
The determination of class membership under Plaintiff’s alternative definition would require this Court to adjudicate on a person-by-person basis whether each proposed class member relied on Defendant’s representations. That is, class membership would not be ascertainable without the imposition of serious administrative burdens incongruous with the efficiencies expected in a class action.
Id. at *11.
Frankly, this “alternative” class wasn’t really a class at all. Three people do not a class make. The defendant pointed out that, despite two years of lawyer advertising, plaintiff had only been able to identify two other individuals as potential members of this alternative class. Id. at *12. And so plaintiff’s alternative class failed numerosity at well.
Thursday, May 10, 2012
Oh, Canada!
We’ve blogged before, occasionally, about drug/device developments north of the border. Most of these developments have involved class action practice, where Canadian law is considerably more liberal than the corresponding rules here in the USA.
But there’s a point at which class actions fail even under Canadian law. That point was recently reached in the parallel Seroquel litigation pending in Ontario. We’re pleased to report that, in Martin v. AztraZeneca Pharmaceuticals PLC, No. 06-CV-314632CP, slip op. (Ont. Super. May 7, 2012), the court flatly rejected class certification.
Unlike the Canadian judiciary (the opinion is 78 pages long, single spaced), we’ll try to keep this report brief.
The class was huge and undifferentiated – “all persons” in Canada who “ever used Seroquel.” Slip op. at ¶5. Likewise, the alleged injuries were everything under the sun. Id. ¶¶7-9. The claims are the same that we typically see in the USA, a hodgepodge of inadequate warning, off-label promotion, and fraud on regulatory agency allegations. Id. ¶¶11-13. Their experts were also eye-rollingly familiar to US litigators, Laura Plunkett and William Wirsching. Id. ¶¶26-28. As often happens in the US, Plunkett was ruled incompetent to offer any medical opinions. Id. ¶¶50. More interestingly, since it's part of her schtick, Plunket was also held incompetent to testify about Canadian regulations, since her only background involved the American FDA. Id. ¶¶65-66. Contrary to the plaintiffs’ apparent position, Canada is not simply an appendage of the US.
Despite having sophisticated class action counsel, plaintiffs were really lousy pleaders. “It is plain and obvious that the causes of action as pleaded will fail.” Id. ¶108. Among other things, they “lump” differently situated defendants “together as a group” and allege that everybody’s liable for everything. Id. ¶109. Maybe we should call these pleading rulings “Canadian TwIqbal” or “CwIqbal” for short. Whatever it’s called, the plaintiffs couldn’t meet the standard and the entire complaint was pitched.
How can counsel who can’t or won’t satisfy the most basic pleading requirements possibly be considered “adequate” for class action purposes?
Just a thought.
Another interesting holding in Martin – at least to us, since we don’t know much Canadian substantive law – is that it’s essential in design defect cases to plead “a safer and economical alternative design.” Id. ¶¶136-37. That’s also the law in many US jurisdictions. Of course plaintiffs can’t plead an actual alternative design in most drug cases, so they just plead that somehow some other drug is safer. That didn’t cut it in Martin. Id. ¶136.
Also, apparently off-label use is regarded in Canada in the same fashion as it is in the USA, something we had always assumed, but never knew for certain:
In sum, the plaintiffs’ abject failure to plead viable claims was the first and foremost ground for rejecting the class action. Id. ¶¶191-92. It was hardly the only ground, however. The court went on to determine that the class failed to satisfy the prerequisites of Canadian class certification.
In reading through the lengthy Martin opinion one thing jumped over and over. The plaintiffs' treatment of the entire country of Canada bordered on contempt – arguing that whatever might support a claim in the USA should simply be assumed to apply to Canada as well. Class action (and other) litigants would do well to remember that Canada is an sovereign country with its own independent system for the regulation of drugs. As for litigants such as these plaintiffs and their experts, who treated the forum country as little more than an annoying afterthought, we recommend:
But there’s a point at which class actions fail even under Canadian law. That point was recently reached in the parallel Seroquel litigation pending in Ontario. We’re pleased to report that, in Martin v. AztraZeneca Pharmaceuticals PLC, No. 06-CV-314632CP, slip op. (Ont. Super. May 7, 2012), the court flatly rejected class certification.
Unlike the Canadian judiciary (the opinion is 78 pages long, single spaced), we’ll try to keep this report brief.
The class was huge and undifferentiated – “all persons” in Canada who “ever used Seroquel.” Slip op. at ¶5. Likewise, the alleged injuries were everything under the sun. Id. ¶¶7-9. The claims are the same that we typically see in the USA, a hodgepodge of inadequate warning, off-label promotion, and fraud on regulatory agency allegations. Id. ¶¶11-13. Their experts were also eye-rollingly familiar to US litigators, Laura Plunkett and William Wirsching. Id. ¶¶26-28. As often happens in the US, Plunkett was ruled incompetent to offer any medical opinions. Id. ¶¶50. More interestingly, since it's part of her schtick, Plunket was also held incompetent to testify about Canadian regulations, since her only background involved the American FDA. Id. ¶¶65-66. Contrary to the plaintiffs’ apparent position, Canada is not simply an appendage of the US.
Despite having sophisticated class action counsel, plaintiffs were really lousy pleaders. “It is plain and obvious that the causes of action as pleaded will fail.” Id. ¶108. Among other things, they “lump” differently situated defendants “together as a group” and allege that everybody’s liable for everything. Id. ¶109. Maybe we should call these pleading rulings “Canadian TwIqbal” or “CwIqbal” for short. Whatever it’s called, the plaintiffs couldn’t meet the standard and the entire complaint was pitched.
How can counsel who can’t or won’t satisfy the most basic pleading requirements possibly be considered “adequate” for class action purposes?
Just a thought.
Another interesting holding in Martin – at least to us, since we don’t know much Canadian substantive law – is that it’s essential in design defect cases to plead “a safer and economical alternative design.” Id. ¶¶136-37. That’s also the law in many US jurisdictions. Of course plaintiffs can’t plead an actual alternative design in most drug cases, so they just plead that somehow some other drug is safer. That didn’t cut it in Martin. Id. ¶136.
Also, apparently off-label use is regarded in Canada in the same fashion as it is in the USA, something we had always assumed, but never knew for certain:
[T]he negligent distributing, marketing and sale cause of action has a further defect as it relates to off-label uses. It is deficient and will fail because the defendants did not have the duty to “ensure” that [the drug] was not distributed, marketed or sold for off-label uses. This is because doctors have the legal right to prescribe [a drug] for off-label uses, regardless of the defendants’ conduct.Martin, slip op. ¶155.
In sum, the plaintiffs’ abject failure to plead viable claims was the first and foremost ground for rejecting the class action. Id. ¶¶191-92. It was hardly the only ground, however. The court went on to determine that the class failed to satisfy the prerequisites of Canadian class certification.
- There was no identifiable class. Martin, slip op. ¶¶198-206.
- The class definition was ridiculously overbroad, including many people who were helped, not harmed by the drug. Id. ¶¶207-09.
- There were no common issues because the plaintiffs failed to describe the claimed injury with any clarity. Id. ¶¶221-28.
- Weight gain and diabetes could not be common issues because both conditions are “ubiquitous” and can be caused by a great many things. Id. ¶¶232-54.
- Allegations of off-label promotion were not logically connected to any claim because no promotion was established that involved any of the plaintiffs’ physicians. Id. ¶¶255-57.
- Off-label use could not be a common issue because it’s legal, widespread and not tortious. Id. ¶¶258-62. The plaintiffs’ own medical expert admitted that he personally prescribed the drug off label on a regular basis. Id. ¶287.
- Plaintiffs failed to establish any evidence of off-label promotion in Canada. Evidence concerning the USA was not evidence concerning Canada. Id. ¶¶263-76.
- Off-label use was not a common issue because there are lots of such uses with nothing in common. Id. ¶¶277-80.
- Since plaintiffs conceded that the drug was effective, its “defectiveness” could not be a common issue. Id. ¶283.
- Duty could not be common “because the issue lumps all defendants and different types of negligence together and draws no distinction” between on and off-label use. Id. ¶285.
- When a duty to warn arose could not be common because the warnings were changed numerous times since the drug was on the market, and thus were not the same throughout the class. Id. ¶290. The weight gain warning in particular changed seven separate times, and the diabetes warnings even more. Id. ¶¶293, 298-301.
- Plaintiffs’ expert’s opinions about warnings in the USA were not relevant to Canada, and the Canadian warnings weren’t criticized. Id. ¶¶303-15.
- Other supposedly common issues were stated with such extreme generality that their resolution would not advance the progress of the litigation. Id. ¶¶322-28.
- The litigation was in Canada. It didn’t matter whether the defendants violated regulations imposed by the American FDA. Id. 329-44.
- Since the plaintiffs failed to establish any common issues on liability, there was no need to decide whether there were common issues concerning remedy. Id. ¶¶345-53.
- The representative plaintiffs were woefully ignorant, having never even read the drug’s warnings. They didn't exhibit sufficient “interest and commitment” to the litigation. Id. ¶¶362-68.
- Plaintiff’s litigation plan was “a work of fiction.” Id. ¶¶369-74.
In reading through the lengthy Martin opinion one thing jumped over and over. The plaintiffs' treatment of the entire country of Canada bordered on contempt – arguing that whatever might support a claim in the USA should simply be assumed to apply to Canada as well. Class action (and other) litigants would do well to remember that Canada is an sovereign country with its own independent system for the regulation of drugs. As for litigants such as these plaintiffs and their experts, who treated the forum country as little more than an annoying afterthought, we recommend:
YANKEE GO HOME!
Friday, April 27, 2012
Who Needs TwIqbal?
Don’t misunderstand us. TwIqbal’s great. It’s left a lot of badly pleaded carnage in its wake over the last five years. But at times it makes sense to mix things up, to give the bench players a chance. Take standing for instance. Standing arguments don't make it into motions to dismiss all that often, at least not in products class action cases. But when it makes legal and tactical sense, standing can be effective. The defendant in Young v. Johnson & Johnson, 2012 U.S. Dist. LEXIS 55192 (D.N.J. Apr. 19, 2012), thought it was a good fit for its motion to dismiss, so it put standing in the starting line-up. And, like so often happens, the bench player came through. The court dismissed the complaint.
Young was a putative class action. The plaintiff claimed that a J&J subsidiary was able to charge a premium price for its margarine substitute, Benecol Spread, through misrepresentation. Id. at *1. The alleged misrepresentations included promotional claims that Benecol was a heart healthy choice, contained no trans fatty acids and could reduce cholesterol through ingredients such as plant stanol esters. Id. at *1-2. The plaintiff asserted that these product claims were misleading principally because Benecol did in fact contain unhealthy levels of trans fatty acids and partially hydrogenated oils. Id. at *6-7.
The court’s standing inquiry focused on injury-in-fact, which is often determinative in a standing analysis. Id. at *6. Where was the injury? Certainly, the plaintiff did not allege that he had suffered any unhealthy outcome from using the product. Id. at *6-7. But worse, he couldn’t meaningfully allege that he got anything less than what the defendant promoted.
Sure, the product contained a small amount of trans fat, but less than 0.5 grams per serving. FDA regulations require such low levels to “be expressed as zero.” Id. at *8. “Zero trans fat” means “no trans fact,” which is exactly what the defendant promoted. And the defendant’s packaging wasn’t coy about any of this (the court considered the language of the packaging because the plaintiff referenced it in his complaint). Benecol’s packaging contains a disclaimer about trans fats and partially hydrogenated oils that reads like a legal argument you’d expect to see on a motion to dismiss:
A small amount of partially hydrogenated oils are used in Benecol Spreads . . . As a result, Benecol Spreads contain an extremely low level of trans fat. The FDA allows foods containing less than 0.5 grams of trans fat/serving to be labeled 0 grams trans fat, since this is considered an insignificant amount.
Id. at *9. Benecol’s ingredient list also says, flat out, that it contains partially hydrogenated oil. Id. As to the cholesterol-reducing claims regarding plant stanol esters, the FDA authorized that too. FDA regulations state that “scientific evidence establishes that including plant stanol esters in the diet helps to lower blood-total and LDL cholesterol levels.” Id. at *8 n.2.
In other words, the plaintiff suffered no injury. He got what he paid for:
[B]eyond relying on his own subjective belief as to the unhealthy nature of even small amounts of trans fats, [plaintiff] does not set forth allegations as to how he paid a premium for Benecol or received a product that did not deliver the advertised benefits. . . . [Plaintiff’s allegations] are insufficient to establish injury-in-fact, particularly in light of Plaintiff's failure to allege any adverse health consequences, the consistency of Defendant's claims with relevant FDA regulations, and the disclosures made on Benecol's packaging indicating the presence of small amounts of partially hydrogenated oils and trans fats.
Id. at *10-11. So there was no injury and, for plaintiff, no standing.
We should note that standing did not stand alone. Plaintiff’s claims were also preempted. The Federal Food, Drug and Cosmetic Act (“FDCA”), as amended by the Nutrition Labeling and Education Act (“NLEA”), governs food nutritional labeling. And the NLEA has an express preemption clause. States can’t impose a nutritional labeling requirement “that is not identical to the requirement” imposed by the FDCA. Id. at *13. And since plaintiff’s claims sought to do just that, the court held that they were preempted. Id. at *13-14.
So the bench player – standing – got the job done – with a little help from preemption.
By the way, if you’re wondering whether TwIqbal could also have won the day, well . . . it could have. The court said as much in a footnote at the end of its opinion: “[T]he Court notes that Defendant's argument that Plaintiff's complaint is subject to dismissal for failure to sufficiently plead the requisite elements of his claims appears to have merit.” Id. at *18 n.8. But that’s for another day. For now, let’s let standing have its moment.
Wednesday, March 14, 2012
Shady Grove Gets Better
Sometimes things turn out better than they first seemed. Myriad examples come to mind: The wild card in baseball. Most anything that William Shatner does. Madonna at the Super Bowl. Ace Ventura, Pet Detective. Wrapping figs in bacon (alright, that might’ve sounded good from the start). You may not agree, but you get the idea.
These examples popped into our heads (they really did) after we read Leonard v. Abbott Labs., No. 10-CV-4676 (ADS)(WDW), 2012 U.S. Dist. LEXIS 30608 (E.D.N.Y. Mar. 5, 2012), an opinion that addresses, among other things, a state-law restriction on class actions and whether that restriction or FRCP 23 applies in a federal diversity action.
Why does this make us think of things turning out better than they first seemed? Because the Leonard decision applies the Supreme Court’s reasoning in Shady Grove Orthopedic Assoc. v. Allstate Ins., 130 S. Ct. 1431 (U.S. 2010). And that decision didn’t seem very good (for us) when it first came out. It raised the concern that plaintiffs, armed with this decision, would circumvent state limitations on class actions by filing a diversity action in federal court and arguing that the class action criteria of FRCP 23 apply, not the state-law limitation.
To give you the background, Shady Grove involved a New York law that prohibited certain class actions “to recover a penalty.” N.Y. Civ. Prac. Law Ann. §901(b). The Shady Grove plaintiff sought to avoid this prohibition by filing his class action claims to recover certain penalty amounts in federal court instead of New York state court. Ultimately, the Supreme Court decided whether this maneuver would work. And it did.
The Supreme Court’s decision was as complicated as these procedural/substantive questions generally get, but it was made even more so by the fact that the Court’s decision was formed via plurality and partially concurring opinions. For the plurality, Justice Scalia considered (1) whether FRCP 23 and the New York law actually conflicted, and (2) if so, then FRCP 23, not the New York law, must be applied, unless FRCP 23 is ultra vires (here, meaning non-procedural) of the Rules Enabling Act. Shady Grove, 130 S. Ct. at 1437 (plurality opinion). Justice Scalia found a conflict and determined that FRCP 23 was not ultra vires of the Rules Enabling Statute – that is, it was procedural. Id. at 1437-44. So FRCP 23 should be applied. Id.
Justice Kennedy’s partially concurring opinion had a slightly different approach and is the key to the Leonard decision. Justice Kennedy agreed with the two-step inquiry cited by Justice Scalia. Id. at 1450-51 (concurring opinion). But he believed that the second-step must address more than whether the federal rule was procedural. The Rules Enabling Act also requires that federal rules “not abridge, enlarge or modify any substantive right.” Id. at 1451. So the Court must also consider whether applying the federal rule would alter state rights or remedies, even if the state law appears at first look to be only procedural:
A federal rule, therefore, cannot govern a particular case in which the rule would displace a state law that is procedural in the ordinary use of the terra but is so intertwined with a state right or remedy that it functions to define the scope of the state-created right.
Id. at 1452 (concurring opinion).
If so, the state law will apply. Now, despite this additional inquiry, Justice Kennedy still sided with the plurality because he determined that the New York law was in fact procedural, not substantive. In other words, Justice Kennedy’s and Justice Scalia’s opinions ultimately got to the same conclusion and formed a majority holding that the class action criteria of FRCP 23 should apply, not the limitations of the New York law.
This brings us back to Leonard. That decision involves many plaintiffs and claims, but we’re interested in the part of the decision that addresses one plaintiff’s claim under the Ohio Consumer Sales Practices Act (OCSPA). Like the New York law, the OCSPA had a provision prohibiting certain class actions. Leonard, 2012 U.S. Dist. LEXIS 30608, at *27. But it was quite different. It wasn’t a broad prohibition against any class action seeking to enforce a particular remedy like penalties. Rather, it prohibited only class actions that were brought under the OCSPA and based on acts or conduct that had not yet been declared deceptive or unconscionable by an Ohio administrative rule or court decision. Id.
Now, the plaintiff in Leonard conceded that no Ohio administrative rule or court decision had declared the conduct about which he was complaining to be deceptive or unconscionable. Id. *27-28. So the defendant moved to dismiss. The plaintiff, however, invoked Shady Grove, arguing that the OCSPA’s class action prohibition was abrogated by FRCP 23, which governed what claims can be maintained as class actions in federal court. Id. at *28.
Here’s where Shady Grove gets better than it first seemed. The Leonard court did not accept plaintiff’s rote application of the plurality reasoning in Shady Grove – that FRCP 23 abrogates all state-law limitations on class actions. The Leonard court looked closely at the reasoning of both the plurality and concurring opinions in Shady Grove. It determined, as other courts have, that the proper way to read Shady Grove is to apply the key portions of Justice Kennedy’s reasoning, which enunciates the “position taken by those [Justices] who concurred in the judgment on the narrowest grounds.” Id. at *32.
From that point, the decision to apply the OCSPA’s limitation on class actions became easy. Justice Kennedy’s concurrence requires a review of whether the state law, even if seemingly procedural, so involves state-created rights that it defines their scope. Well, the OCSPA limitation does just that. It completely eliminates a plaintiff’s right to bring an OPSCA action based on conduct that has not been addressed by an administrative rule or court decision. In other words, it is very much “intertwined with a right or remedy” so “that it functions to define the scope of the state-created right.” Shady Grove, 130 S. Ct. at 1452 (concurring opinion). This is much different from the New York law, which by its terms could apply to causes of action from jurisdictions other than New York. As the Leonard court put it, the OCSPA limitation, unlike the New York law limitation:
is not a pan-substantive rule that applies to federal claims or to claims based on other state’s laws. Rather it applies only to a violation of [the OCSPA] – indicating its substantive nature.
Leonard, 2012 U.S. Dist. LEXIS 30608, at *35.
So, in practice, Shady Grove might not be so bad, at least when it comes to state-law limitations on class actions. In fact, depending on the language of the state-law limitation, it could be another tool to prevent plaintiffs from forum shopping a class action that they otherwise might not have.
Monday, March 5, 2012
At Long Last - Virginia Definitively Rejects Class Action Tolling
Over a decade ago, Bexis convinced the Fourth Circuit to predict that Virginia would reject cross-jurisdictional class action tolling - the notion that a meritless class action filed in one jurisdiction could suspend the running of the statute of limitations in another jurisdiction. See Wade v. Danek Medical, Inc., 182 F.3d 281 (4th Cir.1999). But what was won in Wade had a hard time staying won. Some federal courts, deviating from their federalist duty to construe state law conservatively, nonetheless made conflicting predictions that, maybe Virginia law (despite not recognizing class actions at all) would allow cross-jurisdictional tolling. See Torkie-Tork v. Wyeth, 739 F. Supp.2d 887 (E.D. Va. 2010); Shimari v. CACI International, Inc., 2008 WL 7348184 (E.D. Va. Nov. 25, 2008).
But not all courts. In In re Fosamax Products Liability Litigation, 694 F. Supp.2d 253 (S.D.N.Y. 2010), the court followed Wade in another multidistrict litigation (Wade had followed an MDL remand). The plaintiffs appealed, and the Second Circuit certified the question to the Virginia Supreme Court, which accepted the appeal.
Virginia's highest court has now killed cross-jurisdictional class action tolling dead in that jurisdiction. Casey v. Merck & Co., No. 111438, slip op. (Va. Mar. 2, 2012). Good riddance, we say. It was a long enough time coming - as was the underlying Fosamax class action decision. The plaintiffs wanted over two years of tolling - just for filing a meritless complaint - because it took various courts (it was an MDL, after all) from September 15, 2005 until January 28, 2008 to dismiss the patently bogus personal injury class action.
The Virginia Supreme Court first took the occasion to reject any and all forms of equitable tolling relating to class actions (and maybe more generally):
The statutory aspect of Casey is equally interesting, because various other jurisdictions have general tolling statutes for plaintiffs who find their suits in other jurisdictions dismissed on a non-merits (some sort of procedural) basis. The court determined that, since these plaintiffs were not the named representatives of the putative class, such a statute did not apply to them. They had never filed the first suit:
Casey, slip op. at 6-7.
An unnamed class member, never filed any suit, and doesn't acquire any rights by reason of the dismissal of the class action. Such a person has no standing to invoke statutory standing. That right belongs solely to a plaintiff that actually filed a prior suit:
Casey, slip op. at 9-10 (citations omitted).
That should settle the question. Add Virginia - fully and finally - to the large majority of jurisdictions that reject cross-jurisdictional class action tolliing.
But not all courts. In In re Fosamax Products Liability Litigation, 694 F. Supp.2d 253 (S.D.N.Y. 2010), the court followed Wade in another multidistrict litigation (Wade had followed an MDL remand). The plaintiffs appealed, and the Second Circuit certified the question to the Virginia Supreme Court, which accepted the appeal.
Virginia's highest court has now killed cross-jurisdictional class action tolling dead in that jurisdiction. Casey v. Merck & Co., No. 111438, slip op. (Va. Mar. 2, 2012). Good riddance, we say. It was a long enough time coming - as was the underlying Fosamax class action decision. The plaintiffs wanted over two years of tolling - just for filing a meritless complaint - because it took various courts (it was an MDL, after all) from September 15, 2005 until January 28, 2008 to dismiss the patently bogus personal injury class action.
The Virginia Supreme Court first took the occasion to reject any and all forms of equitable tolling relating to class actions (and maybe more generally):
A statute of limitations may not be tolled, or an exception applied, in the absence of a clear statutory enactment to such effect. [A]ny doubt must be resolved in favor of the enforcement of the statute. Given these principles, there is no authority in Virginia jurisprudence for the equitable tolling of a statute of limitations based upon the pendency of a putative class action in another jurisdiction.Casey, slip op. at 5-6 (citations and quotation marks omitted).
The statutory aspect of Casey is equally interesting, because various other jurisdictions have general tolling statutes for plaintiffs who find their suits in other jurisdictions dismissed on a non-merits (some sort of procedural) basis. The court determined that, since these plaintiffs were not the named representatives of the putative class, such a statute did not apply to them. They had never filed the first suit:
[F]or tolling to be permitted, the subsequently filed action must be filed by the same party in interest on the same cause of action in the same right. . . . [I]n the instant matter, it is undisputed that the four plaintiffs were not named plaintiffs in the putative class action that they claim triggered the tolling. They were merely members of a putative class that included every single American who took Fosamax. . . . For the filing of an action to toll the statute of limitations from running on a subsequently filed action pursuant to [statutory tolling], there must be identity of the parties in the two lawsuits.
Casey, slip op. at 6-7.
An unnamed class member, never filed any suit, and doesn't acquire any rights by reason of the dismissal of the class action. Such a person has no standing to invoke statutory standing. That right belongs solely to a plaintiff that actually filed a prior suit:
[T]o toll the statute of limitations, the plaintiff in the first suit must have legal standing to assert the rights that are at issue in the second lawsuit. A putative class action is a representative action in which a representative plaintiff attempts to represent the interests of not only named plaintiffs, but also those of unnamed class members. Virginia jurisprudence does not recognize class actions. Under Virginia law, a class representative who files a putative class action is not recognized as having standing to sue in a representative capacity on behalf of the unnamed members of the putative class. Thus, under Virginia law, there is no identity of parties between the named plaintiff in a putative class action and the named plaintiff in a subsequent action filed by a putative class member individually.
Casey, slip op. at 9-10 (citations omitted).
That should settle the question. Add Virginia - fully and finally - to the large majority of jurisdictions that reject cross-jurisdictional class action tolliing.
Subscribe to:
Posts (Atom)